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CyrusOne Inc (NASDAQ:CONE)
Q1 2020 Earnings Call
Apr 30, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the CyrusOne First Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Michael Schafer, Vice President of Capital Markets and Investor Relations. Please go ahead, sir.

Michael Schafer -- Vice President, Capital Markets and Investor Relations

Thank you, Chad. Good morning, everyone, and welcome to CyrusOne's First Quarter 2020 Earnings Call. Today, I am joined by Tesh Durvasula, President and CEO; and Diane Morefield, CFO.

Before we begin, I would like to remind you that our first quarter earnings release, along with the first quarter financial tables, are available on the Investor Relations section of our website at cyrusone.com. I would also like to remind you that comments made on today's call and some of the responses to your questions deal with forward-looking statements related to CyrusOne and are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are detailed in the company's filings with the SEC, which you may access on the SEC's website or on cyrusone.com. We undertake no obligation to revise these statements following the date of this conference call, except as required by law.

In addition, some of the company's remarks this morning contain non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release, which is posted on the Investors section of the company's website.

I would now like to turn the call over to our President and CEO, Tesh Durvasula.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thanks, Michael, and welcome to CyrusOne's First Quarter Earnings Call. These are unprecedented times, and we are experiencing a crisis that no one none of us have ever imagined. The loss of life is tragic, and our thoughts go out to all those around the world who have had the experience, the pain of losing a loved one. On behalf of CyrusOne, I want to thank all of our first responders, healthcare professionals and many others that are showing tremendous courage by putting themselves on the frontline. Our number one priority is maintaining the health and safety of our employees, customers and suppliers. And while this is an extremely difficult time for everybody, when we get through this, and we will get through this, we will get through this together.

Turning to our results. As slide four shows, we had a strong first quarter with high growth rates across all of our key financial metrics. We had second highest leasing quarter in the company's history, signing 44 megawatts totaling $60 million of annualized GAAP revenue. Our backlog stands at nearly $90 million, which is a record quarter end total for us, and positions the company very well for growth in 2020 and beyond.

Moving to slide five. In the first quarter, we delivered our first data center in Amsterdam and brought additional capacity online in Raleigh-Durham. We have nearly 90 megawatts across the U.S. and Europe in our development pipeline and upon completion of those projects, our footprint will be nearly 20% bigger compared to a year ago. We continue to focus on strengthening our balance sheet, which is extremely important in this current environment. Di will provide additional detail on this during her section.

Moving to slide six. Slide six provides details on the leasing results for the quarter. The $60 million in annualized revenue signed is more than double the prior four-quarter average, and the longer average lease term of more than eight years reflects the shift of the leasing mix toward the hyperscale customers. This segment accounted for 80% of the bookings in the quarter, up significantly from our prior four-quarter average of 51%, with similar proportion of large deals.

As you may recall, in February, I noted that we've seen a pickup in leasing discussions across our markets since the beginning of the year. This was reflected in our leasing results for the quarter, and we continue to have productive discussions, particularly for larger footprint deals. However, as I also noted in February, the timing of these deals are very difficult to predict. Enterprises accounted for $12 million in bookings, continuing the strong leasing trend that we have seen in this segment in recent quarters, with the demand coming from many markets and verticals. As you know, the enterprises business has been a steady and dependable growth driver for us over the years.

We believe the relationships that we have built and the reputation that we have with these customers will be particularly important as they evaluate their evolving IT infrastructure needs in the new environment. They are familiar with our product, know our track record of delivery and appreciate our level of customer service and responsiveness. They want to source capacity from partners they trust, with strong balance sheets that can meet their needs across multiple geographies and markets. This puts us in a tremendous position to win their future business.

Turning to slide seven. We have seen significant increase in demand for our interconnection products as a result of the pandemic. Revenue grew 18% year-over-year to $13 million, and we had a record bookings quarter with $3.2 million in annualized revenue signed, which is 12% higher than our previous record quarter. Bandwidth bookings were up 100% compared to last year, and this was heavily weighted toward March, which was when there was a dramatic increase in working from home and other remote IT initiatives. I'll talk more about our COVID-19 related implications for our business in a minute. Also, please note that at the bottom of the slide we highlight some of our other key portfolio metrics.

Moving to slide eight. Our European business continues to produce outstanding results. And in the first quarter, we signed $38 million of annualized GAAP revenue. Over the last four quarters, Europe has represented 46% of our total bookings and almost all of this demand is from U.S. hyperscalers, which is exactly what we thought would happen when we made the decision to expand overseas. As we have said previously, we have built up our enterprise sales force to go after European enterprises. And over time, we anticipate that, that segment will supplement the demand from cloud providers. Our current footprint is more than 100 megawatts. And upon completion of the projects that we have in our development pipeline, Europe will represent 16% of our overall business. We have sites under control that will allow us to deliver an additional 250 megawatts, giving us total prospective European footprint of approximately 400 megawatts.

Turning to slide nine. As I said in my remarks, our number one priority is the health, safety and well-being of our employees, customers and suppliers. In response to the crisis, we have implemented our emergency preparedness plan and are continuously monitoring the situation and communicating to all of our stakeholders. We have restricted on-site access to our data centers and are taking the necessary steps to ensure the safety of required personnel. You can find additional details on our response and preparedness by visiting the cyrusone.com website and clicking on the COVID-19 link at the top of the homepage.

As highlighted on slide 10, we are currently seeing limited impact to our business, but this situation is fluid, and we are closely monitoring developments across our markets in U.S. and Europe. Data center operations have been deemed an essential activity, and all of our data centers are fully operational. Our supply chain is intact and well diversified. We dual-source with redundancy across suppliers and geographies, and we maintain inventory for long lead time equipment.

Data center construction has also been deemed an essential activity. With the exception of Dublin, which has restrictions through early May, construction activities are continuing throughout our markets. We may experience minor permitting delays on future development projects in our pipeline, and we continue to monitor those situations. Although the situation remains fluid, we are currently not seeing any material delays in customer implementations.

The past six to eight weeks have highlighted the importance of communications infrastructure in so many different ways. Whether it's supporting work-from-home initiatives for thousands of businesses or online learning for 55 million American students or facilitating collaboration platforms such as Zoom, Slack and Teams or enabling mass consumption of online products and services, data centers have a critical role to play in the new global economy. There will undoubtedly be vast learnings coming out of this global pandemic as businesses are evaluating their IT requirements and identifying gaps as a result of the current situation. They are thinking not only about the near term but also their longer-term needs. I don't think there's any doubt that there will be major changes in the way the world operates going forward. And an underlying theme is likely to be an increased reliance on technology, which creates significant demand opportunities for our company and the industry more broadly.

Turning to slide 11. Our business is well positioned for the current environment. Our strategy of targeting Fortune 1000 has resulted in a very high credit quality customer base, with nearly 80% of our rent generated from these companies. This includes nearly 50% of the rent coming from cloud customers, which are among the strongest credits in the world. We have land and shell inventory across the key data center markets in both U.S. and Europe, which allows us to quickly react to meet demand regardless of where it materializes. We also had a very strong balance sheet with substantial liquidity. And as an investment-grade issuer, we have improved access to capital, as evidenced by the significant new issuance activity in the IG bond market in recent weeks.

In closing, I am very proud of the work that the entire CyrusOne family has done under these difficult circumstances. We are focused on ensuring that we are there to support our customers' near-term needs during this challenging time and working with them to develop solutions for their longer-term requirements. I am bullish on the prospects for our business and we are in a great position to capitalize on the secular demand trends that are expected to continue to provide a strong tailwind for the sector in the years ahead.

I will now turn the call over to Di, who will provide more color on our financial performance for the quarter and an update on our guidance for the year. Thank you. Di?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Thanks, Tesh, and good morning, everyone. As Tesh mentioned, our thoughts are with those that have been most impacted by this crisis. I would like would also like to acknowledge our accounting and financial team for successfully executing our first-ever virtual call as all public companies across the country have done this quarter as well.

Turning to slide 13. Our financial performance remained strong, with solid year-over-year growth across our key metrics. Consistent with the trend of the last three quarters, churn remained low at 1%, and we are maintaining our full year churn guidance range of 5% to 7%. While there is still some certain uncertainty regarding potential financial impacts to some of our customers as a result of the COVID-19 pandemic, this guidance range represents our best estimate for the year at this time. As Tesh discussed, the overall credit quality of our portfolio is very high, and we have lower exposure to industry verticals that are most likely to be significantly affected, which I will expand on shortly.

Moving to slide 14. NOI increased 8% compared to last year with the decrease in the NOI margin driven by a higher proportion of zero-margin pass-through metered power reimbursements this quarter. The adjusted EBITDA margin was up nearly one percentage point compared to last year, driven primarily by increased scale and the impact of our earlier cost reduction initiatives.

As slide 15 shows, we maintain a very well diversified portfolio with an increased contribution coming from Europe. In the first quarter, we brought online our first data center in Amsterdam, and the initial data hall is fully leased. The percentage leased for our stabilized properties remains high at 88%.

On slide 11, we highlight the revenue contribution across industry verticals. The revenue contribution from the IT cloud sector is nearly 50%, and again, represents some of the most highly rated credits in the world. Regarding higher risk industries, energy is now only 5% of our revenue, and many of our energy customers are Fortune 1000 companies with solid balance sheets. This vertical, however, is one of the higher risk categories given the state of the oil sector. We only have roughly 2% exposure to the retail industry, and the vast majority of that concentration is with large discount and grocery companies, which have fared very well during this pandemic. Finally, we have little to no exposure to the hospitality and airline industry.

Turning to slide 16. Our development pipeline consists of construction across eight markets in the U.S. and Europe totaling 438,000 colocation square feet and 88 megawatts. The pipeline is 51% pre-leased on a square footage basis, and the estimated cost to complete is in the $406 million to $486 million range. Our data center portfolio will consist of nearly five million colocation square feet upon completion of these projects. Additionally, we have approximately 670,000 square feet of powered shell under construction across six markets in the U.S. and Europe. Santa Clara, which is not on our development table, is currently in the predevelopment phase, and we expect to have our initial capacity there in 2021.

Slide 17 provides an update on our capital structure. And we continue to take steps to further strengthen our balance sheet. As we've previously discussed, we closed our inaugural fixed rate euro offering in January raising EUR500 million with a seven-year term and a fixed rate coupon of 1.45%. At the end of the quarter, we amended our credit agreement, extending the maturity date by two years, taking into account the renewal options. We also decreased the interest rate margins on both the revolving credit and term loans. The all-in drawn margin on the revolving credit facility based on our current leverage level has decreased by 25 basis points. Further, the margins on the term loans have decreased by 15 to 45 basis points depending on their maturity dates. Additionally, we have decreased the size of the revolver by $300 million to $1.4 billion, resulting in savings on the annual facility fee and reflecting our improved access to capital as an investment-grade issuer.

Lastly, as we announced in late March, we raised an additional $123 million pursuant to a forward sale under the ATM. The forward equity can be drawn down at any time through March of 2021, as needed, to fund our development and manage our leverage. So combined with the ATM forward sale in the fourth quarter, we have $222 million in available forward equity. Our financial position remains strong with leverage at 5.4 times, available liquidity of more than $1.4 billion and 100% unsecured debt. As a result of the euro offering and the amendment to the credit agreement, we've extended our weighted average remaining debt term to 6.2 years, and we have no debt maturities until November of 2024.

Slide 17 shows the estimated commencement timing for our $88 million revenue backlog, which, as Tesh mentioned, is the highest quarter in total in the company's history. We expect lease commencements representing annualized GAAP revenue in roughly the $15 million to $20 million range in each of the next three quarters, and leases totaling $31.5 million in annualized GAAP revenue to commence in 2021 and beyond. This includes approximately $26 million associated with 22.5 megawatts, expected to be deployed in 4.5-megawatt blocks annually from mid-2022 to mid-2026, subject to receiving the necessary permitting. As a result, even with the very strong bookings in the quarter and the record backlog, a meaningful portion of the associated capital requirements will be deferred beyond this year.

Turning to slide 19. We are adjusting our guidance ranges given the current environment. We have marginally decreased the high and low end of our revenue and EBITDA ranges but maintained our capex and NFFO per share ranges. The decreases in the revenue and adjusted EBITDA midpoints reflect the anticipated impact from COVID-19, including potential risks associated with receipt of run payment, slight customer commencement delays and a modest impact from changes in FX currency. We also have additional COVID-19 related expenses associated with steps we are taking in our data center operations to address the heightened situation. With respect to our normalized FFO per share guidance, the potential risk to revenue and adjusted EBITDA are offset by expected interest expense savings, primarily associated with the decrease in the LIBOR forward curve as a result of the actions taken by the Fed in March. We will also benefit from the impact of decreases in our interest rate margins and the credit facility fee associated with the amendment to the credit agreement, as I just discussed.

In closing, we had a strong first quarter, and we are well positioned to operate in this new environment with our existing data center capacity and development pipeline to meet the ongoing demand drivers arising out of this global crisis. We recognize that we are in one of the few industries that is likely benefiting from this terrible crisis, and we do not take that lightly. As Tesh stressed, safety and health is the top priority, which we have focused on as we have remained fully operational at the data center level. We came into this crisis with a balance sheet and liquidity level that can clearly weather this storm. While the balance sheet executions were intentional, it also turned out to be very fortunate timing.

We appreciate your participating on our call, and we are now happy to take any questions. Please note that Tesh, Michael and I are obviously in separate remote locations. So it would be very helpful if you would direct your questions specifically to one of us as you ask them. In addition, given the number of questions in the queue. [Operator Instructions]

With that, thank you, and operator, please open the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question will come from Frank Louthan with Raymond James. go ahead.

Frank Louthan -- Raymond James -- Analyst

Thank you very much. I guess, a question more for Tesh. When you look at the what you booked in the quarter, is any of that from some of the hyperscale customers pulling some business forward, looking to secure some space in case they can't find it later? And what impact do you think that has on the future periods?

Tesh Durvasula -- Interim President and Chief Executive Officer

Hey, Frank, I hope you and your family are safe. No, it wasn't. It was kind of business as usual, as usual you can be, given what happened at the end of the quarter or the last five weeks of the quarter, for sure. We were coming out of a pretty muted Q4, if you recall. So I think it was more taking care of some of that business in early Q1. And then we just were pretty consistent through the quarter with a good group of hyperscalers and enterprises contributing to the quarter.

In terms of the second part of your question, pulling forward. No. Like I said, I think it was more of the Q4 and just a steady rate of business. We've had consistently good conversations. I've been alluding to this now for since December ended. I don't believe a lot of that was COVID-19 related. It was just, I think, normal course of business relation. And now there are obviously different types of conversations going on with COVID-19 as part of the challenge that all businesses are facing.

Frank Louthan -- Raymond James -- Analyst

All right. Great. Just a quick follow-up, I guess, for Diane. Can you give us an idea on what percentage of your revenue, and where it might be, in rent or others, more onetime in nature that might be seeing some weakness given kind of the business disruption and the usual kind of run rate for that? And I assume that's part of why the range of guidance has lowered a little bit. You're seeing a little bit less of that right now. But can you give us a feel for how that's affecting the numbers?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Are you asking that question, Frank, in directly related to the COVID-19 situation?

Frank Louthan -- Raymond James -- Analyst

Yes. I mean, I'm assuming that there's always some kind of onetime revenue. It's usually pretty consistent. And it usually has to do with customer installation, things like that. Is there anything or cancellations or things or other things you may be given credits for that maybe you're now giving a little bit of relief. Is that a 2% to 3% kind of a part of a bit of revenue or am I off base? Just kind of curious what impact that's having in the current environment as we're thinking about modeling?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Yes. Really nothing that impacted the first quarter results given that the sort of the work-from-home didn't really start till mid-March. In the guidance as you know, our guidance ranges just for revenue and EBITDA were brought down, basically, roughly 1%. So that reflects a bit of, again, both the change in FX and the some cushion for rent relief specifically associated with COVID-19, but it's pretty minor.

Frank Louthan -- Raymond James -- Analyst

Okay, great, thank you very much.

Tesh Durvasula -- Interim President and Chief Executive Officer

You're welcome.

Operator

The next question comes from Simon Flannery with Morgan Stanley. Please go ahead

Simon Flannery -- Morgan Stanley -- Analyst

Good morning. Maybe you could just talk about what the kind of reality is on the ground in terms of the competitive environment and your ability to compete for new logos, show customer potential customers around the facilities, etc. How much of that is are you able to do remotely versus stuff really getting delayed a little bit on the getting new customers versus expanding with existing customers? Thanks.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thanks, Simon. Hopefully your family is safe. Thanks for the question. We have listen, everyone is learning how to work in the new world and the sales process and the presales process is equally being disrupted through this change. The good news is we had all of the thing the base infrastructure in place. So we had virtual tours ready. We had the ability to deliver. We were using Teams well before COVID-19. So there were lots of that infrastructure that was already in place for us to help facilitate the sales process.

Unfortunately, I don't think we actually talked about new logos in our in our dialogue this morning in our comments this morning, but we had a really good new logo pickup. We did add a couple of folks that we had not seen, that we would consider in that second tier of IT, cloud, hyperscaler type clients that took space in our facilities. So we were able to see that. I think obviously, Simon, I think that you will it will be easier to do business with folks that you've already contracted with, that already know your facilities that they're trying to expand. That seems to be a trend that we're noticing right now. But we did not see our new logos dip off considerably in the first quarter, and the conversations in the Q2 were still quite healthy.

Simon Flannery -- Morgan Stanley -- Analyst

Right. And the competitive environment?

Tesh Durvasula -- Interim President and Chief Executive Officer

This has been a competitive industry for quite some time now. And I don't tend to run into the smaller private guys as much, except for maybe one market or two. I can tell you that my public brethren are extremely aggressive in the marketplace. They've done a great job of managing their business between we probably go against the big the guy above me all the time in most of our hyperscale deals. Most of my clients are his clients, so they know us really well. And it's we've been that's to me, that's kind of been the environment for the last decade, and that really hasn't changed much.

Simon Flannery -- Morgan Stanley -- Analyst

Thank you.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thank you.

Operator

The next question will be from Erik Rasmussen with Stifel. Please go ahead.

Erik Rasmussen -- Stifel -- Analyst

Yeah, thanks for taking the questions. And nice execution. Obviously, we're all in challenging times here. So bookings were strong in Europe. Could you just maybe comment on pipeline and the types of deals that the team is tracking? Obviously, it seems like hyperscale and large-scale deals were a big percent of the mix, but any sort of comments there? And maybe that's for Tesh.

Tesh Durvasula -- Interim President and Chief Executive Officer

Sure. Thanks, Erik. Hopefully, your family is safe. So Europe our business mix is quite different. It has been a primarily hyperscale focused business in that market. When we acquired it, it had a fewer number of logos. Over the last 18 months of operating it, we've added some new logos in that market. But it's still primarily a hyperscale place business. What we have seen in the market is that the request, and this when I mentioned last February that the conversations were bigger, they're also getting bigger in Europe.

So in Europe, it's probably our history, both legacy and with us operating, kind of biggest deal was between 2.5 and 5.5 megawatt type of footprints. We have now seen conversations that are 5.5 and greater so I think that we're seeing the footprints get larger. And this is related to many factors. Pre-COVID-19, I think everyone got their head around their delivery in the market. They got their head around and they got a strategy around GDPR and how they're going to handle transactions, and they've got their head around the technology and how to continue to expand in the marketplace. So as they're maturing, the footprint sizes are getting bigger in Europe. And so we've been the beneficiary of that.

Erik Rasmussen -- Stifel -- Analyst

Great. And maybe just sort of the hyperscale theme here. And again for you, Tesh. Nova seems to be recovering and we're even hearing of improved demand. How are you seeing this market in your opportunities? And then maybe with that, can you just comment on other markets where you're seeing an improvement versus what you thought maybe just 90 days ago?

Tesh Durvasula -- Interim President and Chief Executive Officer

Thanks, Erik. Just on a follow-up to, I think it was Simon's question, we did have 11 new logos this quarter. So that was so it was a healthy number of new logos in that in the quarter. In related yes, we've definitely seen a pickup in Northern Virginia. Parts of the other parts of the world, Dallas, Phoenix have all started seeing increased activity in the pipeline. And so I think that we'll start seeing some of that hopefully come through over the course of the year.

We have over 100 megawatts of available of potential capacity in Northern Virginia between what we have remaining in our Kincora project, and we've got two other campuses that we can deliver capacity. So we think we're well positioned as the demand keeps coming up. And if it ramps up to where it is and where we think it can get to, we'll be well positioned for it. But yes, we are seeing a pickup in demand and a pickup of requests for Northern Virginia.

Erik Rasmussen -- Stifel -- Analyst

Thank you.

Operator

Next question comes from Eric Luebchow with Wells Fargo. Please go ahead.

Eric Luebchow -- Wells Fargo -- Analyst

Hi, thanks for taking the question. This one will probably be for Tash. So just a follow-up on that question. I'm wondering if you've seen any shift from the U.S.-based hyperscalers, particularly in the U.S., on self-building their own data centers. Are you seeing them increasingly come back to the multi-tenant market to help manage some of the demand spikes in their network? If you've seen any trends there, that would be great. Thanks.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thanks. Eric, it's been they are the most demanding customers on the planet. They have definitely changed planetary buying. Their capital requirements and their demand requirements across the globe continue to increase. And money is not the issue for those clients. They've got more money than most of the banks. It's who can deliver and where they can deliver. So it's really a question of as they continue to think about their planning, and this goes for the entire industry, are we well positioned to help them in an area or market where the curve quickly move for them, the demand curve quickly move for them, and they will come to us.

They have very experienced teams internally. They definitely continue to build in some markets that they have the benefit of the time and the planning. But all of us would continue to be the beneficiaries of the increased demand. I think this is the first week that all of the five of them, Facebook, Apple, Google, Microsoft, all reported in the first same week in like seven years or some number like that. So we're seeing all those numbers moving up and to the right, which means that even the best forecast can probably be challenged by that. And I think that we and all of the industry benefit from that growth.

Eric Luebchow -- Wells Fargo -- Analyst

Great. And just a follow-up to that. I wanted to home in if you've seen any pickup in demand in the federal sector, particularly with Microsoft and the new JEDI contract, if you see any movement there, particularly in the Northern Virginia market?

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes, I think that's part of what that pickup has been. People have asked us about our land and the total capacity on that land. And like I said, we've got over 100 megawatts of capacity. So I believe that as they're starting to get their planning appropriated for not only JEDI but other projects, and remember the federal government has installations all over the country, it's not isolated to the Northern Virginia area, many of the markets will see a benefit from that from increased government activity. But we have seen a pickup in the Northern Virginia area about land, but it's also asked we've also been asked about specific government projects in Texas, in Illinois and other markets.

Eric Luebchow -- Wells Fargo -- Analyst

Great, thank you.

Tesh Durvasula -- Interim President and Chief Executive Officer

Yeah. Thank you.

Operator

The next question will be from Richard Choe with JPMorgan. Please go ahead

Richard Choe -- JPMorgan -- Analyst

Great. I have one for Tesh and one for Diane. Starting off with Tesh. Can you give us a little bit more color on how the deal came through, I mean, 22.5 megawatts over the long time frame? Is this how are you comfortable with the client and vice versa? And is this all at one location? Or is this multiple markets? And then I have a follow-up for Diane.

Tesh Durvasula -- Interim President and Chief Executive Officer

Sure. So it's a client that we do a lot of business with. We're very happy with the credit, and we're extremely it's been a project that's been in the works for over a year. And what we love about it is obviously the size and the credit. And but it's also the other thing we like about it is that it's a project that we have to deliver over a course of the next three to four years. And there's an opportunity to accelerate it or but generally speaking, the plan is to deliver over three to four years, which means you get to have a really specific amount of capital that you roll out every year. It's not an unpredictable amount, and that's what we really loved about it. And it's we don't comment on specifics around where deals are. Our customers don't like when we do that. So we try to keep that a little quiet, if you don't mind.

Richard Choe -- JPMorgan -- Analyst

Got it. And then for Diane, in terms of the margin, the margin was pretty good in the first quarter, but the guide is kind of implying kind of tougher kind of rest of the year? Anything there? Is that just being conservative?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

In terms of are you referring to EBITDA margin?

Richard Choe -- JPMorgan -- Analyst

Adjusted EBITDA. Sorry. Yes.

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Yes, yes, adjusted EBITDA margin. Yes. I mean, I think we even said at the beginning of the year that it would be relatively in line with where we ended 2019. Part of that is, again, due to probably more metered power this year than last. And that obviously is a zero-margin business. But yes we should it is we anticipate over time it will continue to increase, but relatively flat year-over-year this year.

Richard Choe -- JPMorgan -- Analyst

Okay, thank you.

Operator

And the next question will come from Nick del Deo with MoffettNathanson. Please go ahead.

Michael Srour -- MoffettNathanson -- Analyst

HI. This is Michael Srour on for Nick. A number of your peers are starting to rely more heavily on the channel to land deals. You've historically been reluctant to go that route. Has there been any change in your thinking on that front? Or you're still dedicated to driving the vast majority of your sales through your internal sales force? Maybe for Tesh.

Tesh Durvasula -- Interim President and Chief Executive Officer

Michael, welcome to the call, and I hope your family is safe, and please give our best to Nick. It's not that we were reluctant to do anything. We've had a vibrant channel program. It just contributed on a percentage basis not as significant as our direct sales force did and our relationship with both the cloud and enterprise customers. It is when you have a robust channel program, it is probably the most expensive sale because you have another party, and possibly two parties to participate in the transaction in terms of commissions and fees. So and it's part of our secret sauce is the relationships that we develop with these enterprises, and it's been the foundational element of how we've grown over the past two decades.

It's the ability to do the complex deal with the large enterprises and then repeat that process in another location for them. So and we don't it's OK to have and we use brokers and agents and advisors in many transactions. But on a percentage basis, they're probably not as big. And because our customers enjoy that relationship with us directly, we don't want to dilute their experience by adding more mouths to feed and more hands to grab on to. So that's probably we still work with a lot of folks, and it's just never been a big percentage.

Michael Srour -- MoffettNathanson -- Analyst

Got it, thanks.

Operator

Our next question is from Colby Synesael with Cowen. Please go ahead.

Michael -- Cowen -- Analyst

This is Michael [Phonetic] on for Colby. Tesh, I hope you and your family are staying healthy and safe in this terrible time. two quick questions for you if I may. Given the strength in the quarter, can you give us an update on how your funnel has changed quarter over quarter? And what percentage of your current funnel comes from Europe? And also, are you seeing more opportunities similar to that 22-, 25-megawatt deal where the customers are leasing capacity today, which will be delivered in outer years?

Tesh Durvasula -- Interim President and Chief Executive Officer

Great. So the mix of the funnel has been pretty consistent, though the hyperscalers, like I said earlier, and we've seen this trend now for about three to four months, has been that the hyperscalers are thinking about larger deployments than they were through most of the second half of 2018 and most of all of 2019. So that part has changed. The names have changed a little bit as well. Like I said, we've got we had a couple of the new logos in that 11 new logos were what I would call that next 10 of hyperscale type or cloud type companies and cloud computing type deployment. So we're definitely seeing that.

Europe has definitely been strong for us. Like we reported, 46% of the bookings over the past five to six quarters has been from Europe. And that trend we don't see subsiding anytime in the near future. A lot of our existing clients, like we said in the opening comments and remarks, were looking for us to move into the Europe market. And so we obliged them, and we've gotten the reward of that. I say roughly of our overall funnel probably 30% of our overall funnel is Europe based. And that shift, like we said, we announced that we were moving into Europe late in 2017 and then it finally closed in late 2018. And so it's been a long journey for us to get there. And even with the rapid expansion that we've seen, first client in Amsterdam, getting these buildings completed and getting megawatts leased, it's still only 16% of the business by the end of next year. So we've got a lot of work to do, and we're very committed to that work and we need to just stay focused on the markets that we're working on and the customers that want us to build for them.

Michael -- Cowen -- Analyst

And then on the larger opportunities, like the 22, 25 megawatt deal?

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes. Well, we've had a history of building cloud centers for our clients for four years now. We've done from Northern Virginia to Arizona to and we hope that the market will continue to get larger in Europe. So we can see that type of growth in the European markets as well. It's just it's more difficult to get that type of campus environment and that kind of power in Europe. As you know, it's an extremely constrained and tight market, in many of the markets that we operate, in especially like London and Frankfurt. So but yes, we're very happy to see that the what we call the cloud center product, deployments of over 20 megawatts and above, are coming back into vogue. I think we definitely missed those in 2019.

Michael -- Cowen -- Analyst

Perfect, thank you.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thank you

Operator

The next question comes from Ari Klein with BMO. Please go ahead.

Ari Klein -- BMO -- Analyst

Thanks, Tesh, recognizing it's still very early, how have conversations changed with enterprise customers in this environment? And to what extent do you expect some of them to accelerate some of those investments? And maybe if you can comment on which sectors you would expect to kind of lead the way there.

Tesh Durvasula -- Interim President and Chief Executive Officer

All right. Ari, how are you and hope your family's safe. I think it's listen, you've got we've got a bunch of data that's going to come into us over the next two to three weeks, as all these companies are reporting, because we deal with the Fortune 500 and the Fortune 1000 primarily, they're larger companies, they're public. And so we're going to see a lot of it. The things that you would expect are probably going to be true, right? Hospitality and these folks are going to be challenged. And the ones that are really thinking about how their disaster recovery is working and what they need are the ones that are focused on. So think about financial services. I mean, one of the I live in the New York City area and for years everyone thought you couldn't you had to set up a trading desk somewhere else in order to trade.

And what we're realizing that people have actually been able to do that from home or from another type of location. So I think all of these learnings are going to come out over the next like I said in my comments, there's going to be vast learnings about this. And I do believe that when you look at myself, our industry as a whole, our competitors, we all had very high levels of availability. We're able to keep our facilities up. We're able to make sure that people felt safe. We're able to make sure that we screened appropriately. And those are all the things that when you think about what you're going to do in the future is going to be beneficial for folks who have to keep systems up.

We were always we, and I say this for us and the industry more broadly, we're always operating in. We have to be prepared when the lights go out, we have to stay on. It just so happened, we never thought it was going to be all at once. And it happened, and we all responded very, very appropriately. I've been speaking to my peers. And the other thing I would comment on is the collaboration that we have seen through all of the operations professionals, the CEOs. I've spoken to my peers, text messages, understanding what we did in best practices across different markets. We had the benefit of having a very close relationship with GDS, understanding that they had this pandemic at ground-zero, if you will, early on.

They were sharing with us how they were able to maintain all of their operational excellence with no cases no confirmed cases in their data centers. We took some of those best practices, operated them put them into CyrusOne's operation. And then when we talk to our partners at ODATA or others, we said it's in the best interest of all of us to make sure that our vendors, suppliers and everyone remain healthy because obviously we share multiple providers. We don't want anyone to get sick and close down my site or someone else's site. And so this was it was there have been some perversely speaking, there have been some benefits that have come out of this pandemic and the operational excellence of our industry is one of the things that I look upon proudly.

Ari Klein -- BMO -- Analyst

And then Diane, obviously you don't have a lot of exposure to at-risk sectors. But if you can maybe just comment and provide some color on rent collections and release requests, and what you've been seeing from that standpoint?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Yes. I mean, I think March was generally in line with our historical. April, we're getting to the end of April today, but it was tracking a bit lower, but not alarming. And we think some of it just might be slow pay in this environment because people are working outside the office. So even your payables group is remote in any company, as is ours. So again, we're incredibly fortunate that we just don't have a lot of exposure to the industries that are going to get the most hit by this pandemic and by the shutdown of businesses and travel and whatnot. Again, so we think any exposure on the margin has been reflected in our guidance ranges that we provided today.

Ari Klein -- BMO -- Analyst

Great, thanks for the color.

Operator

The next question is from David Guarino with Green Street Advisors. Please go ahead.

David Guarino -- Green Street Advisors -- Analyst

Hey, guys. I think this is probably for Tesh. I know this isn't the best metric to use, but if we look at our revenue per megawatt from the leases you guys signed in Europe this quarter, it's trending well below the historic pace of where the company's kind of priced deals. And I know Europe typically comes with lower development returns, but could you maybe just talk about how pricing has changed in that market since you entered it a few years ago?

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes. I'm not sure how you got that. But our we're actually seeing in that market price a lot of price stability. Like I said, all of my public peers that I deal with on a regular basis in Europe have been very consistent and very disciplined around how we are pricing deals. In markets like Frankfurt, we actually increased pricing for certain deals over the past 12 months. So I'm not sure how that how you got to that number. I'd be more than happy to take it off-line and make sure that we understand what you're looking at. But no, we've seen a lot of stability in pricing. Like I said, the folks that I probably compete against on a regular basis that we compete against on a regular basis has been extremely disciplined around pricing, around renewals, around how we are deploying capital. And that, to me, is the maturity that our industry has come under and especially the public company, my public company peers.

David Guarino -- Green Street Advisors -- Analyst

That's helpful. And then maybe just one quick follow-up on Europe. Can you maybe just remind us how annual contractual rent bumps work for the hyperscale deals in that market? Are they fixed? Or are they CPI linked.

Tesh Durvasula -- Interim President and Chief Executive Officer

It can be both. They've had they do a lot of PPI indexing, cap and collars around CPI indexing or just flat rental. There's different rules in different markets around how indexing is can be viewed. And so you just got to work with those rules. But generally speaking, it's a blend of both.

David Guarino -- Green Street Advisors -- Analyst

Thanks.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thank you.

Operator

The next question is from Jon Atkin with RBC. Please go ahead.

Jon Atkin -- RBC -- Analyst

Thanks very much. Both mine are for Tesh and then I think I'll have some follow-ups for Diane off-line. But where do things stand with the CEO search in terms of process and time line? And then the second question would be around just without naming customers, can you give us a sense of the major geographies, metros within U.S. and Europe where you saw the biggest leasing volume this past quarter?

Tesh Durvasula -- Interim President and Chief Executive Officer

Sure. So yes, the CEO search has been going on and progressing as the Board has outlined to me. And I'm just using the a standard time line of it it's got to take a couple of quarters. And if I use historical averages of both of my bigger peers, I think it was six and seven months, respectively. So I think I've been told that the Board is and in my conversations with the Board that they're progressing nicely, they feel comfortable with the time line. And so I think somewhere later in the year they will be ready to announce something. They have to do their process and they're doing it properly. And our Board is very experienced and in a time like this, it's really nice to have someone like a Bill Sullivan who lived through the 2008 crisis in Prologis or Tod Nielsen and understanding technology. So the Board has been a great partner for us through this whole process and understanding how to deal with these types of unprecedented time, just getting their experience and their value in conversations has been unbelievable.

In terms of markets, I think we talked about them all. They've been pretty well diverse. We only operate in four in Europe. So we've seen good interest and demand in all of those. Obviously, anything coming out of we had we did, I think it was five or six megawatts total in London last year. And so any activity in London kind of in a post-Brexit world is really nice for us, nice to see because that was a little soft last year. In the U.S., I think we already talked about, Northern Virginia has picked up. But we had good activity in Arizona, good activity in Dallas, good activity in Raleigh-Durham. And also the New York City, New Jersey assets have been had some good bookings and good activity in them as well. So we're very pleased with kind of where we are and where our footprint is relative to the enterprises and the cloud customers and where their demand is coming from?

Jon Atkin -- RBC -- Analyst

And then maybe just to squeeze in one for Diane or Tesh. You can kick Diane in the shins if you want to answer it. But you had $4 million to $5 million of your backlog shifted from late 2020 into 2021. And I guess I'm just kind of wondering any general trends to call out on decision cycles for wholesale deals. Is it customer-specific or decision cycles getting longer, shorter? What would be the general observation?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Are you referring to the backlog shift?

Jon Atkin -- RBC -- Analyst

The backlog shift, exactly. Yes. 2020 into 2021

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Yes. That wouldn't be obviously that would be less about decision-making. That would just be more the construction cycle. And when we give the backlog estimated timing every quarter that we provide, that's our best estimate at that point. But it's not unusual for something to flip, say, from the end of a quarter to early the next quarter. But yes, no major trends that we're concerned with. But not surprising given what's going on. But some of the construction is or customer implementation is just a slight shift.

Jon Atkin -- RBC -- Analyst

Thank you.

Tesh Durvasula -- Interim President and Chief Executive Officer

You're welcome.

Operator

The next question is from Michael Funk with Bank of America Merrill Lynch. Please go ahead.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Yeah, thank you for the call today in the questions. Maybe to begin, a couple for Tesh, if I could. So thank you for the color on Europe. Obviously, very strong demand in that region. I think you have 250-megawatt current in under development capacity. But thinking about the future demand trends, how are you thinking about incremental development in New York, Tesh, to match that with demand? Obviously, always a balancing act, right, on that capacity in time versus predeveloping? So how are you thinking about that?

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes. We think about it often. On a weekly basis, we are sitting there looking at our markets and how we should think about future capacity. The thing for us has been that we've got a really good project development and site selection team that have been so good at going out, finding a plot of land, getting the power and seeing if we can get it zoned and permitted appropriately. And it's even more difficult in Europe than it is in the U.S. And in this COVID-19 environment, you show up at some markets, and there's no one in the city hall or town planning area to take a phone call to even ask, but we've still been working diligently on it.

So the key for us is to be to have really purposeful growth, really understand when we go into a market, that we have good demand, that we have a client in toe and go and derisk that development at all costs. And that to me is really what I'm focused on, is making sure that when we we're talking to our customers, getting ahead of what they want us to do and then going into a market that we know that we can derisk that acquisition that land acquisition with either a pre-lease or a signed lease prior to development.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

And one more for you, Tesh, if I can, please. Alibaba announced about $28 billion spending over three years on cloud infrastructure, including data centers. I think part of the rationale for investing in GDS was obviously to hopefully tap that market. Previously, CyrusOne's commented on demand coming out of Asia. So maybe just update us there and your expectation or opportunities from some of that spending from Alibaba?

Tesh Durvasula -- Interim President and Chief Executive Officer

Sure. Well, let me pause for a second because what a difference three years makes. When we started that relationship with GDS, it was a tremendous investment. Our Chief Strategy Officer, Jonathan Schildkraut, led the thought on that. And it's proved to be unbelievably valuable for us because 3.5 years ago we had very little, if not zero, exposure to any of the Chinese cloud companies. And once we were able to get introduced to them, then the CyrusOne magic happens where we get to develop relationships, talk about our delivery, our construction and development expertise, and we were able to develop those. And we probably had over 20 megawatts probably close to 30 megawatts come into Cyrus over the three years. And we've now got relationships with all those folks. So that's the good news. Over that same period of time, we've been able to develop all those relationships.

Fortunately, those relationships are gained now, and we can rely on them, and they've done business and transaction with us. Unfortunately, the environment has shifted quite a bit. It's going to be difficult to say what happens. In the last 24 months, there's been a trade war with China. And now the political the geopolitical ramifications of what's just happened. There's lots of speculation on what that means. So we're very pleased with the relationships we have with the folks some of those folks that you mentioned in Europe in your question. But we're going to be very cautious in understanding what happens going forward with all of these relationships because I think the political environment is definitely going to be shifting.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Yes. One more if I could, quick. I know we're kind of running long here. But Di, if I could ask you one question on the guidance. I know you mentioned there's some conservatism in the guidance. And I get that. Totally right environment for conservatism. I think you mentioned obviously kind of rent, FX, commencement timing. It looks or it feels even to me that leasing in 1Q may have been even stronger than you expected, in your report in 4Q, maybe I'm wrong. But Di, if you could just maybe bridge us here and break out some of the piece parts so we can think about more of a normalized guidance. So if these other conservatism factors weren't in there, how does guidance look?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Well, look, we don't do like a pro forma guidance. So the guidance we gave is what we feel is appropriate at this point. And even though, yes, we had an amazing bookings quarter, again, roughly 35% is 2020 and beyond when rev rec starts. And any rev rec that we really have beginning, say, in the fourth quarter isn't much impact to this quarter. So we're thrilled with the tremendous bookings. But it's much of it is really a bigger impact to 2021.

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes. Michael, I'd just say it's early in the year, it's April, and this is such a fluid situation coming forward. We're happy with Q1 but we've got a lot of year left to work through.

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Understood. But I really appreciate the time. Hope to see you all soon in person and hope you all well thank you.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thank you, Michael.

Operator

The next question comes from Jordan Sadler with KeyBanc. Please go ahead.

Katie -- KeyBanc -- Analyst

Hey guys, good morning. Thank you for taking the question. This is Katie [Phonetic] on for Jordan, and I hope you all are well and staying safe. I have two questions, one for Tesh. You've kind of talked about ongoing conversations with hyperscalers and you talked about the pipeline. Have you seen the momentum you guys saw in 1Q carry over into 2Q? We now have just about like a month under our belt into 2Q? And then I have a follow-up question for Diane.

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes. We'll definitely talk about Q2 at our Q2 earnings call. But so far, like I said, the conversations have been really positive since end of middle of December of 2019. So and we've just seen that those conversations continue to stay positive in spite of the current environment of COVID. And like I said, all the tools were already in place. So the virtual tours and the ability to do meetings with teams and all that stuff. So I feel like we're in good position. And we've always said that there is a lumpiness to our business. And if you can do one cloud center deal in a year, that's a really good thing, really good result. And we got off to a really good start in Q1, but there's a lot of year left to still play. And so we just want to make sure that we keep both hands on the wheel and both eyes on the road, if you will.

Katie -- KeyBanc -- Analyst

Awesome. And then, Diane, just a quick question for you. In terms of like 1Q expenses, did you recognize any bad debt in the quarter?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

It was pretty normal to our historical.

Katie -- KeyBanc -- Analyst

That's great, thank you guys. I question, have you all staying safe thank you.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thank you, Katie.

Operator

The next question will come from Nate Crossett with Berenberg. Please go ahead.

Nate Crossett -- Berenberg -- Analyst

Hey, good morning. I guess this one's for Tesh. Just a follow-up on the pricing question asked earlier. I know you touched on Europe, but what has the pricing been like in the U.S., specifically Nova, say, today versus six months ago?

Tesh Durvasula -- Interim President and Chief Executive Officer

Yes, that's like we said, I think there's been a lot of consistency and stability among most of my public peers, and we compete on a fairly regular basis. Almost 3/4 to 80% of the deals it's head-to-head with the guys bigger than me. And so we're very we feel comfortable with where we're priced. We feel comfortable with continuing to find incremental cost savings in our construction and delivery times. These are all important to how customers view us.

And then just one market indicator, if you look at our last big quarter, which was kind of Q3 of 2018, our average price I think the price on that was 105 and this year it was like this quarter it was like 115. So you can actually see that on a relative basis, there was not only a lot of stability, some of that was product mix because we didn't do any operations in Europe at that point, but you're still you're seeing that stability. And that's almost a two-year look-back if you look at that. So I think that gives you a really good sense of kind of how the market has stabilized in terms of pricing.

Nate Crossett -- Berenberg -- Analyst

Okay. That's helpful. And then just one quick one for Diane. On the lease expirations for 2020, 2021, what should we kind of be penciling in in terms of renewal spreads?

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

We deal with that in our churn guidance. We don't report a same-store per se, but our churn captures not only nonrenewals but any rate decreases. And it's typically roughly 50% of churn is just nonrenewals and about 50% is rate adjustments. But again, we stress that even in rate adjustments, oftentimes, because we don't offset it, it could be that a customer took more space and power. So on the margin we give them a little more competitive rate or they do additional lease in another data center. So there's typically a story to that, but we don't we have never offset. We just report the most conservative way regarding churn.

Nate Crossett -- Berenberg -- Analyst

Okay, thanks guys.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Tesh for any closing remarks.

Tesh Durvasula -- Interim President and Chief Executive Officer

Thanks, everyone, and thanks for joining our first quarter earnings call. I know this has been a very difficult time for everyone out there. I just wish all of you, your families, your employees, all health and safety. And I know that this is we're going to come out of this and we're going to come out of this together. But what I've said recently is that there are some things that are pretty this COVID-19 is pretty infectious, but one thing that's even more infectious and that is the human spirit. And what we are doing as an industry and as a humanity, I'm extremely proud of. So have a good day.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Michael Schafer -- Vice President, Capital Markets and Investor Relations

Tesh Durvasula -- Interim President and Chief Executive Officer

Diane M. Morefield -- Executive Vice President and Chief Financial Officer

Frank Louthan -- Raymond James -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Erik Rasmussen -- Stifel -- Analyst

Eric Luebchow -- Wells Fargo -- Analyst

Richard Choe -- JPMorgan -- Analyst

Michael Srour -- MoffettNathanson -- Analyst

Michael -- Cowen -- Analyst

Ari Klein -- BMO -- Analyst

David Guarino -- Green Street Advisors -- Analyst

Jon Atkin -- RBC -- Analyst

Michael Funk -- Bank of America Merrill Lynch -- Analyst

Katie -- KeyBanc -- Analyst

Nate Crossett -- Berenberg -- Analyst

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